FRAN KELLY, HOST: The Shadow Treasurer Chris Bowen joins us now. Chris Bowen welcome back to breakfast.

CHRIS BOWEN, SHADOW TREASURER: Good morning Fran. Good to be with you.

KELLY: Before we get to wages can we look at the overall economy? If Labor wins the election you will inherit an economy barely moving forward. Is it now prudent to rethink some of your big economic reform plans including changes to negative gearing and dividend imputation?

BOWEN: Well Fran we do have a slowing economy and as you said on a per head basis we now are in recession on Scott Morrison and Josh Frydenbergs watch. I mean they have spent a lot of time playing politics and not much time managing the economy and we're seeing now the economic costs of dysfunction at the heart of the Liberal Government. Now you move to Labor's policy Fran, fair enough. We are the alternative Government. We have put out a lot of policies, and we carefully design our policies. And if you want to cherry pick our policies and debate them Im happy to do that. But I'm also happy to debate our bigger tax cuts for 10 million Australians, every Australian earning less than $125,000. Our Investment Guarantee, a spur to investment to get the economy going. A 20 per cent upfront deduction for business. Our investment in human capital and in our young people and universal preschool for three and four year olds and a big investment in schools and vocational education and training. All of this will help the economy, will spur the economy.

BOWEN: Yes we have made difficult decisions to improve the budget, to get bigger budget surpluses for a bigger buffer in internationally uncertain times and slowing circumstances in Australia but we also are very cognizant of the fact that families are doing it tough, going backwards with their real wages are experiencing weakening consumption. They are finding it difficult to make ends meet. They've been dipping in more and more into their savings. We have a record low household savings rate compared to the last few years and we have record high household debt. The second highest household debt in the developed world. Now in large part that's because families are struggling and they've been managing to keep consumption steady by dipping into their savings and borrowing more but that is utterly unsustainable going forward. So we do need a holistic package which looks at tax, which does look at tax relief for low and middle income earners, take some of that cost of living pressure off which is what Labor's policy does.

KELLY: Well the Government plans tax relief too.

BOWEN: Well when Fran, when?

KELLY: Well the Governments

BOWEN: 2022 Fran. 2022/2024. A Shorten Labor Government would deliver that tax relief next year. I mean not on the never never. I think the Australian people are entitled to be very cynical about a Government which said we'll get around to tax relief in 2024. We'll provide that tax relief next year and we can do that with bigger Budget surpluses because of the tax reforms and other decisions we have engaged in and are seeking a mandate to implement.

KELLY: I understand that Labor has more than two policies but two of the ones that will reap a fair bit of money that youre going to spend on these promises include the franking credits and the negative gearing policy. If we go to franking credits, $5 billion out of the economy a year, $55 billion over a decade. Wouldn't that lower household consumption which would then otherwise be able to feed into the broader economy?

BOWEN: Well Fran what we're talking about here is making our tax system fir for purpose. Now this is not a tax rise. This is a

KELLY: But I'm talking about. It does take five billion dollars out of the pockets of people.

BOWEN: Well of course Fran, again you look at our entire fiscal policy and you look at the policies as a whole and you'll see that we are also increasing the purchasing power of low income earners in the workforce. And this comes down to the fundamental fairness of the tax system Fran. I mean if you've got a nurse you've got a nurse who is earning $67,000 a year we charge that nurse $13,000 a year tax. If you've got a retired shareholder earning a very similar amount through share dividends we charge no tax. Fair enough. I agree with that but then we provide a tax refund of $27,000. So we take $13,000 off the nurse in tax, we do not charge the retired shareholder who's not on a pension any tax and we also provide a tax refund. Now I think that's fundamentally wrong. I understand not everybody will agree with that but I think that's fundamentally wrong. I don't think it's sustainable and I think we have to make those sorts of decisions to put the Budget on a much better footing, to have those important investments in our future through schools, hospitals, pre-school but also to provide those bigger Budget surpluses going forward because we are in internationally uncertain times. The Australian economy is not going as well as it should. And this Government has been asleep at the wheel Fran. Yesterday's press conference by the Treasurer had more mentions of Bill Shorten, Chris Bowen and Labor than it did about the economy.

KELLY: All right. Lets talk about your policies then because I understand that Labor's argument is that you're, you know, putting the budget on as you would say a more sustainable footing by making changes to things like negative gearing. But again it's the timing of your negative gearing changes because the housing market has fallen dramatically in the major cities of Sydney and Melbourne 10, 12, 15 per cent in some places. When you devised this policy it was a very different housing market. Is it time to not abandon that policy but to say well given the state of the economy we will put that on hold?

BOWEN: Well Fran we designed the policy carefully. Now yes of course there has been some softening in the housing market off a very high base Fran. Lets not kid ourselves. I mean house prices in Sydney and Melbourne are still substantially higher than they were just a few years ago Fran. So while it is right to point to some softening I accept that.

KELLY: It is significant. No no no. I know but nevertheless it's a changed market from when you devises policy.

BOWEN: You talk about how much housing prices have come down. Let's talk about how much they went up, about 50 per cent in Sydney and they are now down from that higher base. And if you think Fran that first time buyers with all due respect around Sydney are popping champagne corks that they are now getting into the housing market. I talked to a very different bunch of first time buyers who still say correctly we would like to be on a more level playing field with investors which is what our policy does. Our policy was designed for a range of market circumstances. When we designed the policy Fran the Perth housing market wasn't booming. The Hobart housing market was very different to the Sydney and Melbourne housing market. With all due respect I live in Sydney as you do but we can't just be focused on the Sydney housing market. We design our policies with a focus on the entire housing market over a long period of time and it remains the right policy for the interest of fairness financial stability and the Budget.

KELLY: All right let's talk about wages. It's 17 minutes to 8, our guest is the Shadow Treasurer Chris Bowen. Yesterday Bill Shorten didn't rule out introducing a living wage. Are you on board with the living wage. Is that Labor's policy?

BOWEN: Well of course Fran Bill made a very important contribution. Now I'll get to the living wage in just a moment.

KELLY: We are going to run out time soon.

BOWEN: We will but you've asked me a very important question I want to give you a comprehensive answer. We've developed a range of policies to deal with this low wages growth. When I talk to businesses, most businesses, not all, most businesses who accept that low wages growth is not in anybody's best interests, not in the best interests of employees or employers or our economy or frankly our society. Some employers will always argue against any wage increase but many I have very sensible conversations with. Now we've engaged a whole range of policies including reversing the penalty rate cut, dealing with sham contracting, dealing with labour hire

KELLY: Sure, we know all that but is the living wage policy.

BOWEN: Well Bill identified an issue yesterday that employers and employees and unions and Government working together to engender more wages growth. Now what little wages growth we are seeing as a result of the minimum wage increase last year. The OECD, that radical organisation the OECD has said that for a living wage it should represent 60 per cent of the median wage. Bill was pointing out that in Australia we're not doing that. Now we'll continue to consult about right policy settings in relation to minimum wage and will have more to say about you know further announcements obviously in the lead up to the election. But Bill was 100 percent correct. He's the only leader of a major party in Australia pointing out that wages growth is not working for our economy, for our employees certainly, but for our economy or our society and we are the only party of Government with a plan to do something about it. I mean Scott Morrison

KELLY: Just to be clear on this; Labor is or is not committed to a living wage?

BOWEN: Bill didn't make any policy announcements yesterday. He highlighted the issue. He highlighted the issue which is what we've been doing for six years, highlighting issues, engaging in further consultation and then making further policy announcements. But just as we have bigger tax cuts for Australians earning less than $125,000. Just as we will reverse the penalty rates cut. Just as we will engage in the crackdown on sham contracting. Just as we will do engage in a whole range of policies to boost the purchasing power of low and middle incomes. It is the fact that there is a small number of people on the minimum wage in terms of the broader economy when it comes to workers. About two per cent rely on the adult minimum wage. And that's important. There are more flow on effects as well. So we always take these things carefully Fran but Bill was 100 percent correct and is the only major party leader identify the issue of wages growth. I mean we'll have ours and as I said we.

KELLY: We're almost out of time and I really want to ask you two quick questions because business leaders are really rounding on Labor this morning in the Fin Review, warning of a return to the 19th century industrial mayhem if you couple a living wage with a return to pattern bargaining. Boral's Mike Hayden says the strikes will come because industries can be held to ransom.

BOWEN: Well as I said before, there are some employers who will resist any wage rises. I accept that. I have lots of discussions with employers, big medium and small who accept that the current system is not working. Yes we need more productivity growth in Australia Fran. We had negative productivity growth yesterday, yet again on the Liberal Party's watch. 8 out of last 10 quarters of labour productivity growth have been negative. But we also point out that while we need to deal with that we need more policy leadership. This Government has done nothing about labor productivity growth. We need more policy leadership. We also need to recognise that the system's not working for everyone and that many Australians are going backwards. Everything is going up in many cases except wages and we need a holistic solution which does involve investment, our investment guarantee, productivity growth. But it also involves a serious discussion with employers, unions and Government working together to say the wages growth mechanism in many instances is not working. It is not fit the purpose. It has not kept up with modern developments.

KELLY: Can I just ask you a quick question-- answer on this one. There's some division on show from the Government today over energy policy. Half a dozen Nationals are demanding a vote before the election on the big stick divestment powers. Do you expect this to be back on the agenda in Budget week?

BOWEN: Well I'm happy for you to come in for a vote Fran because we'll be voting against it. I mean the National Party's right to say Parliament should have a say but it should be defeated. Talk about business. I mean this is an anti-business anti-investment Venezuelan style socialist intervention from a Government which believes in nothing, in nothing Fran. The Labor Party will stand for good policy. This is a piece of populist gimmickry on behalf of Josh Frydenberg. It is appalling economic policy. We need more investment in energy generation. Threatening companies to say If you invest we will take your asset off you. We will make you run the risk of having your asset taken off you. It is appalling policy. The Labor Party has been against it from day one. We will vote against it. I am more than happy for it to come on in the Parliament. I don't think Josh Frydenberg and the Government will have the guts to bring it up for a vote. That's what the National Party is annoyed about. I agree with the National Party to this degree. It should be voted on and then it should be defeated.

KELLY: Chris Bowen thanks very much for joining us.

BOWEN: Good on you Fran, Ive got to catch my flight. Nice to talk to you.

KELLY: Chris Bowen is the Shadow Treasurer.

ENDS